Figure 1: Change in Net Income and Total Assets (from Baseline) – USD Millions – under a Global, High Carbon Expense Environment (NZ 2050)
In a world of fragmented climate and energy policy, reviewing company performance under various energy transition scenarios is more important than ever. As our models indicate, over the next five years, industrial companies could face billions of dollars in net income reductions and balance sheet adjustments under a high carbon expense environment.
While worldwide policy tightening may seem unlikely today, various jurisdictions have, or are imminently implementing or contemplating, stricter carbon rules. This unlevel playing field creates challenges for corporates when making strategic plans across markets.
Using Entelligent’s forward-looking quantitative models we analyzed nine industrial companies to assess potential costs and risks in a high carbon expense world (Net Zero 2050.) All companies in the sample show negative changes in net income and total assets from baseline, but the dispersion of results is significant. Contributing factors include industrial processes and feedstocks, reliance on grid versus owned generation, and available decarbonization pathways.
Companies with ambitious Net Zero 2050 targets, robust energy transition objectives, and significant progress to date are likely better placed to withstand energy transition challenges and shocks, given their deeper understanding of their energy use, intensity, and procurement.
All companies in the sample reside in the bottom-left quadrantindicating scenario-driven losses in both assets and net income compared to Baseline. Companies to the left of the red line could face greater asset impairment due to stranded asset risk from on-site energy generation that relies on fossil fuels.
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